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Summary Strategic decision making (441058-B-6)
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SAMENVATTING STRATEGIC DECISION MAKINGLECTURE 1
This course is about understanding and explaining how and why decision makers
arrive at the big decision they take, as well as the consequences of these
decisions.
Decisions are made all day:
- Some need additional information.
- We ask advice for some decisions.
- Some are made on the basis of pre-existing heuristics.
- We try to narrow down the number of alternatives.
- Organizations are also confronted with decision-situations.
- The key challenge to any decision is the reduction of uncertainty.
Fundamental characteristics of strategic decisions
- Complexity: large number of aspects.
- Uncertainty: unknown number of alternatives/ solutions.
- Rationality: try to reach a goal.
- Control: intentionality.
Strategic decisions – decisions committing substantial resources, setting
precedents, and creating waves of lesser decisions; as ill-structed, non-routine
and complex; and as substantial, unusual, and all-pervading.
Three perspectives:
1. Strategy as important decisions.
2. Strategy as critical tensions.
3. Strategy as decision interdependence along three dimensions.
Leiblein et al. (2018) position on these perspectives:
- 3 > 1.
- 3 > 2.
- 1 equally bas as 2, or worse?
The integrative framework
,The SDM process – the process by which a
strategic decision is made and implemented and the
factors which affect it, i.e. the process that leads to
the choice of goals and means and the way in which
means are effectively deployed.
Key assumptions of SDM:
- Departure points of SDM thinking,
research & theorizing: So, why
spend more time and resources on
these decision and processes?
- Reasons for this lie in a myriad of
factors, amongst which analytical
and organizational complexity. To
deal with this:
o Professionals develop tools
bases on decision analysis
and/ or evidence-based
approaches.
o Researchers identify the factors that increase or decrease the
quality of strategic decision from a multidisciplinary viewpoint.
- Assumptions underlying the SDM process-
effectiveness relationship.
Key questions for the course
A. How can we understand variation and heterogeneity of the effects of
context on SDM processes?
The way decision making processes unfold is subject to decision-situational
factors: not every situation is suited for an approach rooted in information
gathering and analysis in relation to goals.
B. How can we understand variation and heterogeneity of the effect of
context and SDM processes and outcomes?
, In addition, the collaborative interaction between participant in the SDM
process and the dynamics of the process can unfold in different ways
leading to different decisions, and thus outcomes.
What is the integrative framework?
- It is a set of constituent parts with the links between them.
- The analytical scheme to study SDs.
- Integration of (sets of) factors from a multi-theoretic perspective.
Why do we need it?
An analytic review scheme is necessary for systematically discerning (=
onderscheidend) patterns from a widely differing set of studies and evaluating
the contributions of a given body of research and to guide future research.
Framework – context component
The context refers to those aspects that are not subject to the choice situation
to those decision-makers present at the moment of decision.
- “…refers to the top management team, strategic decision-specific
characteristics, the external environment and firm characteristics”.
- Connects mostly to question a (see also elaboration).
o … subject to decision-situational factors…:
o Context creates the ‘decision premise’ and ‘strategic options’.
The problem to respond to & the options available to remedy
the problem.
o The combination & analysis of environmental, organizational, top
management and decision characteristics provide us with the input
for the formulation process.
Starting point for the process-effectiveness link.
Framework – process component
The SDM process - the process by which a strategic decision is made and
implemented and the factors which affect it, i.e. the process that leads to the
choice of goals and means and the way in which means are effectively deployed.
- In our approach, the process consists of formulation and implementation.
Framework – outcomes component
Outcomes - the intended and unintended consequences of a strategic decision.
Decision level vs. organizational level vs. supra-organizational level outcomes.
- DLO – the intended and unintended consequences of a decision
considered in terms of financial and/ or nonfinancial outcomes isolated
from other influences, i.e. outcomes as a consequence of the SD that was
taken.
- OLO: the intended and unintended consequences of a decision considered
in terms of financial and/or nonfinancial outcomes in the aggregate of all
influences on the organizational outcomes, i.e. outcomes as a
consequence of all relevant organizational activity influencing those
outcomes, including SD.
- SOLO: repeat OLO, add environment and inter-organizational (network)
outcomes.
In the aggregate of all incluences on the outcomes that fall beyond the
boundary of the single organization taking the decision, i.e., outcomes as a
, consequence of all organization activity that goes beyond the boundary
and influences those outcomes including the SD.
B. how the decision is made and put into action + intended and unintended
consequences:
Process + outcome act upon the ‘decision premise’ by selecting and defining the
issue that needs to be tackled, act out the strategic option to tackle that leads to
a materialization of the process-effectiveness link.
The process-effectiveness link is where practitioners look forward (future) and
make estimates about intended and unintended consequences.
the higher the uncertainty, the more challenging it is … or not.
LECTURE 2
Environmental context
- Context beyond the boundaries of the organizational system which takes
the strategic decision.
- Empirical studies show that environment factors (especially industry-level
factors) are moderators (e.g., uncertainty and dynamism).
o Moderators of what?
o Should also be considered an antecedent (= voorganger)?
Industry environmental factors: high-velocity environments
- Eisenhardt (1989) making fast
strategic decisions in high-velocity
environments.
o Industry environment & SDM
o Mixed method study (’84-85) of
the microcomputer industry’s
environment with the aim of
extending (or rather building)
theory.
o Remember that case studies help developing theory and cannot test
theory.
Industry environmental factors: industry-context.
Microcomputer industry
- A nascent industry with a high rate of change of (dominant) players at the
time.
- Fast technological substitution.
- Explosive growth rates (e.g., home computer segment grew by 805% in
1982).
- Continuously firms entering and leaving the market, and relative
competitive positions fluctuated constantly.
These discontinuities in technology and competition, and extreme growth
leads to (strategic) information which is of dubious quality.
Throwback to assumptions of SDM
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